Brokerages Fined Over Legal Defense

December 16, 1998|Bloomberg News

WASHINGTON — In cases that could make it easier for brokerage customers to collect punitive damages, Fort Lauderdale-based Biltmore Securities, Merrill Lynch & Co. and Bear Stearns Co. were fined by regulators for using discredited legal arguments during arbitration.

The National Association of Securities Dealers charged that Merrill Lynch, Bear Stearns & Co., and Biltmore Securities violated NASD rules by trying to convince arbitrators that their customer contracts contained language prohibiting the award of punitive damages or attorneys' fees.

The brokerages, the NASD charged, raised their contract language as a defense in arbitration even after a March 1995 ruling by the U.S. Supreme Court rejected that argument.

"This will make life easier for arbitrators," said Theodore Eppenstein of Eppenstein & Eppenstein, a New York law firm that represents investors. "They won't see that defense any more."

Merrill Lynch, the largest U.S. brokerage, agreed to pay $25,000 to settle the NASD case. Bear Stearns, the sixth-largest U.S. securities firm by capital, agreed to pay $15,000. Biltmore was fined $20,000 in a case alleging rule violations involving the punitive damage clause and other defenses. In settling the cases, none of the firms admitted nor denied the allegations.